Regular savings accounts
Regular savings accounts could offer you a higher interest rate than other accounts. But, typically, you’ll need to put in a certain amount of money each month. Read our guide to help you decide if a regular saver is right for you.
Regular savings accounts explained
A regular savings account could earn you a higher rate of interest than other types of savings accounts.
It’s a good way to start building a nest egg and get you into the habit of saving. But you’ll need to be committed to putting in a minimum amount each month.
Let’s take a closer look to help you decide if a regular savings account might be right for you.
What are regular savings accounts?
A regular savings account offers an easy way to save little and often. You commit to depositing a small sum of money each month, up to a maximum amount.
In return, a regular saver could give you a higher interest rate than you would get with an ordinary savings account.
Most providers will only let you open a regular savings account if you’re an existing customer who already has a current account with them.
But there are a few regular saver accounts that are open to all. And many of them can be easily managed online.
Some regular savings accounts don’t allow you to withdraw your money for 12 months. So you’ll want to be sure you won’t need it during this time.
Who are regular savings accounts for?
A regular savings account might be a good option for you if you:
- Want to build up a nest egg
- Want to get into the habit of saving each month
- Are saving up for a special event, like a holiday or wedding
- Want more interest than you can get with an ordinary savings account
- Can commit to saving a minimum amount each month.
Regular savings accounts tend to have stricter terms and conditions than a straightforward, easy-access savings account. For example, most regular savers have rules on how much you can put in and take out.
You’ll need to be disciplined and commit to depositing a certain amount for a regular saver to work for you. A regular savings account probably isn’t a good idea if you can’t afford to set aside money each month.
Regular saver accounts are also probably not the best place to keep emergency funds that you might need to get your hands on quickly.
How does a regular savings account work?
Regular savings accounts are for putting away specific amounts each month for a fixed period. Accounts vary among providers, but typically:
- You'll need to deposit a minimum amount each month, which could be as little as £10.
- There’s a maximum monthly deposit limit, which could be anything from £50 up to £500.
- With some regular savings accounts, you might have to save the same amount each month.
- You may have to set up a standing order to transfer the cash from your current account.
- Most regular savers only last for a limited period, often a year.
- Some banks may close your regular savings account if you don’t make the required monthly deposit. Others will let you skip one or two months without a penalty.
- Some regular savers allow you to take money out, but they might lower your interest rate. Others don’t allow you to make any early withdrawals at all.
It’s important to read the terms and conditions carefully before deciding which is the best regular saver account for you. This is especially true if:
- You’re not sure how much deposit you can commit to each month
- You may need easy access to your money while you’re saving.
If you’d prefer to have a more flexible method of saving, an easy access savings account might be a better option.
How much interest can I earn with a regular savings account?
Regular savers can offer fixed or variable rates of interest. The highest AERs (interest rates) tend to be variable. But this means the interest rate could go down as well as up.
Fixed-rate regular savings accounts give you more certainty, but the interest rate offered might be slightly lower.
Important note: the actual interest you’ll earn will be about half the given rate. That’s because the interest is worked out periodically over the months you save.
Interest is based on the money in your regular saver account at the time, not the final lump sum.
For example:
You open a regular savings account offering 5% interest, then deposit £100 each month over the next 12 months.
At the end of the term you might expect to have £1,200, plus £60 in interest – 5% of £1,200. In reality, you may only have earned around half that amount – around £32.
This is because you’ll have only had the full £1,200 in your account during the last month. In the first month, you’ll only earn interest on £100, and so on as the amount grows over the year.
How can I get the best regular saver rates?
The best regular savings accounts, with the highest interest rates, are usually reserved for existing customers. It’s one of the ways that banks and building societies reward loyalty.
But you can also get monthly interest savings accounts with decent rates that are open to all.
Just be aware that the best regular saver accounts often have the strictest criteria. For example, the interest rate might be reduced if you don’t save every month or if you need to make a withdrawal.
Regular saver accounts are ideal for maximising your returns in the short term. But there are other account types that will have much more generous limits for long-term saving.
It's always good to compare regular saver accounts with other types of accounts. That way, it’s easier to decide which option has the best features for you.
How much do I have to save into a monthly savings plan?
How much you have to save depends on the regular savings account you choose. Most expect a minimum deposit of at least £10 a month, while some regular savers insist you put away the same amount each month.
If you’re confident you can put in a decent monthly sum, it’s worth looking for a bank that offers a higher monthly limit, even if the interest is slightly lower.
Some banks let you skip a couple of months without it affecting your interest. Others might cut your interest or even close your regular savings account if you miss a monthly payment.
| Top tip If you have a large lump sum to invest, you can put it into an easy-access account that starts paying interest straight away. You can then transfer small amounts over to your regular savings account each month. That way, you’ll earn interest on the lump sum, while benefiting from a higher rate on the money you put into the regular saver |
What are the alternatives to regular savings accounts?
A regular savings account isn’t for everyone. If you want more flexibility and easy access to your money, while still earning interest, here are a few alternatives to consider:
Instant access savings account – interest rates are typically lower than regular saver accounts, but you can take your money out whenever you want.
High interest current account – an everyday bank account with a debit card for spending that also pays you interest on your credit balance. You’ll usually have to pay in a certain amount each month to earn the interest rate.
Cash ISA – a tax-free savings account. You can get regular savings accounts that are also cash ISAs. That means the interest you earn will be tax-free. Alternatively, you could opt for an instant-access cash ISA if you want more flexibility with your deposits and withdrawals.
Find out more about different ways to save.
Frequently asked questions
How long will I get the advertised rate for?
Most regular savings accounts only offer the headline rate for a year, sometimes two. Once the deal is over, your money is likely to be moved to your current account or an easy access savings account, which may offer no or very little interest.
You may want to make a note to move your money when the savings account deal ends.
How will my savings be taxed?
UK taxpayers have a Personal Savings Allowance , which means you can earn a certain amount in interest on your savings without having to pay tax on it.
- If you’re a basic taxpayer (20%), you can earn up to £1,000 in interest each year without having to pay tax on it.
- If you’re a higher-rate taxpayer (40%), you can earn up to £500 in interest each year without having to pay tax on it.
- Additional rate taxpayers don’t get a Personal Savings Allowance.
It’s very unlikely you’d have to pay any tax on a regular savings account. That’s because the balance won’t be nearly big enough to earn that much interest.
What’s the difference between a regular saver and an ISA?
The main difference between regular savings accounts and ISAs is that the interest you earn on savings in an ISA is tax-free.
Do I have to save each month?
Check out the rules on whether your regular savings account requires you to save money each month.
Some banks may let you skip a couple of months without it affecting your interest. Others might cut your interest or even close your account if you miss a monthly payment.
How many regular savings accounts can I have?
You can have more than one regular savings account, but not usually with the same provider. Most banks only let you open one regular saver with them at a time.
Do regular savings accounts have compound interest?
Yes, regular savings accounts usually have compound interest. This is interest earned on both the original amount you’ve deposited and the interest added to that.
Is my money safe in a regular savings account?
Provided the bank or building society is FCA regulated, savings up to £85,000 are protected under the Financial Services Compensation Scheme (FSCS).
It’s important to know that FSCS protection applies per provider, not per regular savings account. This means if you have more than £85,000 in savings, you may want to consider splitting it across multiple banks or providers.
Can I get regular savings accounts for my kids?
Yes, you can get regular savings accounts for your kids. While there isn’t a huge amount of choice, it’s possible to find children’s monthly savings accounts with competitive interest rates.
You can typically save between £10 and £100 a month until the fixed term ends after a year.